The result of adverse selection is that
A) higher-quality producers drive lower-quality producers out of the market.
B) lower-quality producers drive higher-quality producers out of the market.
C) consumers will be able to purchase only high-quality products.
D) higher-quality producers receive a higher price than they would if adverse selection was not present.

Question

Quizplus · Accepted Answer

Adverse selection occurs when lower-quality producers are able to offer lower prices, which attracts consumers away from the higher-quality producers. This results in higher-quality producers being driven out of the market, leaving only lower-quality producers. Therefore, answer B is correct. Option A is incorrect because it is the opposite of the outcome of adverse selection. Option C is incorrect because adverse selection leads to a decrease in the availability of high-quality products. Option D is also incorrect because adverse selection results in lower-quality producers being able to offer lower prices, so they would not receive higher prices.

The Result of Adverse Selection Is That